Inheritance Tax Post-Election

IHT has long been contentious sparking debate on fairness, financial impact, and wealth distribution. As the general election is days away, the fate of IHT is in the spotlight, with political parties offering distinct visions on its future.

IHT is charged at 40% on estates valued over £325,000, with additional allowances for residences passing to direct descendants. Despite attempts to simplify the regime, many see the tax as an unfair penalty on assets accumulated over a lifetime. 

1. Conservative Party: Propose increasing the tax-free threshold and potentially lowering the rate to ease the financial impact on families. This approach seeks to encourage savings and investments, promoting economic growth. If they secure a majority, it could mean significant IHT reform, with promises of a more generous allowance. 
2. Labour Party: Suggest either maintaining the current system or possibly increasing rates for larger estates. Labour’s focus is on using IHT to fund public services and welfare programs, redistributing wealth more equitably. If Labour gains power, we can expect a more stringent IHT regime aimed at higher earners.
3. Liberal Democrats and Other Parties: The Liberal Democrats would potentially implement reforms to make IHT fairer without drastic changes i.e. incremental adjustments to allowances and rates and measures to close loopholes. Smaller parties, such as the Green Party, might advocate for more radical changes, aligning with broader economic and social policies.

The election’s outcome will significantly influence estate planning strategies. A Conservative win might encourage individuals to revisit their wills and estate plans, taking advantage of higher thresholds and reduced rates. On the other hand, a Labour victory may lead to a surge in estate planning activities, with families seeking to mitigate higher tax liabilities.

Legal advisors will play a crucial role in navigating these potential changes, helping clients adapt to new rules and optimize their inheritance strategies. Trusts, lifetime gifts, and other planning tools may become increasingly important, depending on the new government’s policies.

As we head to the polls on Thursday, the future of IHT hangs in the balance. Whether leaning towards lower taxes and economic incentives or higher taxes and wealth redistribution, the implications for estates and financial planning will be profound.